Structured Settlement Protection Acts

Written By : Alanna Ritchie
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State and federal laws exists to protect structured settlement recipients from selling the right to future payments when it is not in a recipient’s best interest.

States Taking the Lead

Over the years, a number of states have enacted their own version of a Structured Settlement Protection Act (SSPA), with many legislatures basing their statutes on a model created by the National Conference of Insurance Legislators (NCOIL).

In total, there are 48 states with their own regulations.

Although the laws differ slightly from state to state, all the SSPAs reflected the same fundamental legislative priorities:
  • When a factoring company offers to buy structured settlement payments, they are required to disclose to the seller the difference between the value of the payments if the annuity contract is maintained versus their value if sold.
  • The transfer of payments to the buyer is predicated on court approval and based on a judge’s findings that the transfer will serve the best interests of the payee and/or any of his or her dependents. The court must also find that the transfer is necessary to prevent undue financial hardship.
  • The buyer must supply the payee with a disclosure statement providing a summary of the agreed-upon terms of the transaction.
  • Within a certain time frame, the seller has the right to cancel the sale if they change their mind. The specifics of this “cooling-off period” vary from state to state.
  • Sellers must give all “interested parties” the opportunity to oppose, support or otherwise respond to the proposed transfer. Sellers must submit to the court proof that all interested parties have been notified.
  • The transfer of payments must not contradict any applicable federal or state statute or any court order, judgment or decree.

Beyond these basics, some practical variances in the laws do exist. For example, some SSPAs require a settlement buyer to merely recommend that a payee seek outside professional advice before entering into a transfer agreement, while other states make independent professional advice mandatory unless specifically waived by the payee. Certain states also require beneficiaries of the structured settlement annuity to be notified of the sale.

Due to differences in laws and the busyness of certain court systems, the selling process is easier in some states than in others. If you need court approval to sell future settlement payments, you may be able to choose between working in the state where you live and working in the state where your annuity provider is based. Ask your factoring company for their professional opinion about where it’s best for you to file your sale in court.

Federal Law Standardizing State Statutes

In 2002, the federal government sought to codify existing state legislation.

Congress amended Section 5891 of the Internal Revenue Code with two important provisions that further clarified industry rules:
  1. It required all transfers of structured settlements to be court approved and in compliance with each state’s SSPA, including the mandate that the transfer be in the best interests of the seller as well as any of his or her family or dependents.
  2. For any structured settlement transfer that fails to comply with the required procedures, it imposed an excise tax of 40 percent on the difference between the value of the future payments sold and the amount paid to the person who wanted to sell. This punitive tax is how the federal government seeks to prevent unscrupulous factoring companies from conducting business outside of accepted industry norms.

The federal government’s involvement had the effect of ratifying all of the various state regulations already in force and prodding the remaining states to work on their own SSPAs. Since 2002, all but two have passed their own versions of the federal law. Vermont, the most recent convert, approved its legislation in 2012.

Today, only New Hampshire, Wisconsin and Washington D.C. do not have Structured Settlement Protection Acts. But that gap is hardly limiting. If you happen to live in any of these three jurisdictions, you can sell your structured settlement in the state where the insurance company that makes the payments is located.

Additional Regulations for Individual States

This list is provided as an overview. For complete information, refer to the full text of your state’s Structured Settlement Protection Act.

Alabama

The seller must receive detailed financial and legal disclosures before transferring payment rights.

Alaska

The purchaser must disclose key terms to the seller. The seller must also receive independent professional advice regarding implications of the transfer. Beneficiaries of the structured settlement must be notified of the sale.

Arizona

The purchasers must advise the seller in writing to seek professional advice.

California

The purchaser must advise the seller of their right to seek legal counsel in connection with a transfer petition and pay fees for the seller’s counsel up to $1,500, whether or not a transfer subsequently occurs. A copy of the transfer agreement must be filed with the California Office of the Attorney General. Transfers of structured settlements related to workers compensation benefits are not allowed.

Colorado

The purchasers must advise the seller in writing to seek professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.

Connecticut

The purchasers must advise the seller in writing to seek professional advice.

Delaware

The seller must receive independent professional advice. Beneficiaries of the structured settlement must be notified of the sale.

Florida

The seller must receive independent professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.

Georgia

The seller has 21 days to cancel their sale. Beneficiaries of the structured settlement must be notified of the sale.

Hawaii

The purchaser must disclose key terms to the seller.

Idaho

The purchaser must advise the seller to seek professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.

Illinois

The purchaser must advise the seller to seek professional advice.

Indiana

Transfers of structured settlements related to workers compensation benefits are not allowed.

Kansas

Transfers of structured settlements related to workers compensation benefits are not allowed.

Kentucky

The purchaser must disclose key terms to the seller. Transfers of structured settlements related to workers compensation benefits are not allowed. Beneficiaries of the structured settlement must be notified of the sale.

Louisiana

The seller must receive independent professional advice. The purchaser must provide a written disclosure with the terms of the financial transaction in no smaller than 14-point font. Beneficiaries of the structured settlement must be notified of the sale.

Maine

The seller must receive independent professional advice. Interested parties must consent to the transfer if settlement documents prevent assignment of payments. Beneficiaries of the structured settlement must be notified of the sale.

Maryland

The seller must receive independent professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed. Beneficiaries of the structured settlement must be notified of the sale.

Massachusetts

The seller must receive independent professional advice.

Michigan

The seller must receive independent professional advice. Interested parties must consent to the transfer if settlement documents prevent assignment of payments. Discount or interest cannot exceed 25 percent per year. Transfers of structured settlements related to workers compensation benefits are not allowed.

Minnesota

The seller must receive independent professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed. Beneficiaries of the structured settlement must be notified of the sale.

Mississippi

The purchasers must advise the seller in writing to seek professional advice.

Missouri

The court must find that payments made to seller equal “the fair market value of the structured settlement rights being transferred.” Transfers of structured settlements related to workers compensation benefits are not allowed. Beneficiaries of the structured settlement must be notified of the sale.

Montana

Transfers of structured settlements related to workers compensation benefits are not allowed.

Nebraska

Transfers of structured settlements related to workers compensation benefits are not allowed. The purchaser must notify the seller of their right to independent professional advice. Discount or finance charges cannot exceed the maximum interest rate for a consumer loan.

New Jersey

The purchaser must notify the seller of their right to independent professional advice.

New York

The purchaser must notify the seller of their right to independent professional advice. The transfer agreement may not require the seller to pay the purchaser’s attorney fees or costs if a transfer is not completed or any federal tax liability (other than the payee’s own tax liability). Transfers of structured settlements related to workers compensation benefits are not allowed. New York requires much of the contractual communication between secondary buyers and sellers to be done by U.S. Postal Service and not by email (this can delay the process for residents of New York).

North Carolina

The seller must receive independent professional advice. Discount or interest rates cannot exceed prime plus 5 percent, and fees cannot exceed 2 percent of the net amount payable to payee. Transfers of structured settlements related to workers compensation benefits are not allowed. Beneficiaries of the structured settlement must be notified of the sale.

Ohio

The seller must receive independent professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.

Oklahoma

The purchaser must advise the seller in writing to seek professional advice.

Pennsylvania

The purchaser must advise the seller to seek professional advice or sign a waiver of advice.

Rhode Island

The purchaser must advise the seller to seek professional advice.

South Carolina

The purchaser must advise the seller in writing to seek professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.

South Dakota

The purchaser must advise the seller to seek professional advice.

Tennessee

The purchaser must advise the seller to seek professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.

Texas

The purchaser must advise the seller in writing to seek professional advice.

Utah

The purchaser must advise the seller in writing to seek professional advice.

Virginia

The purchaser must advise the seller in writing to seek professional advice.

Washington

The purchaser must advise the seller in writing to seek professional advice.

West Virginia

The seller must wait 14 additional days before a sale can go through.

3 Cited Research Articles

  1. Internal Revenue Service (2009). Structured Settlement Factoring Audit Technique Guide. Retrieved from http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Structured-Settlement-Factoring-Audit-Technique-Guide-ATG
  2. 4Structures (2012). Structured Settlement Protection Statutes. Retrieved from http://www.4structures.com/4structures/front/resources/template/resources_structured-settlement-protection-act.jsp
  3. Internal Revenue Code (ND). Structured Settlement Factoring Transactions. Retrieved from http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleE-chap55.pdf
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